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USD/CAD Rate Forecast: Monthly Opening Range Warns of Further Losses

USD/CAD Rate Forecast: Monthly Opening Range Warns of Further Losses

David Song, Strategist

Canadian Dollar Talking Points

The monthly opening range casts a bearish outlook for USD/CAD as the exchange rate snaps the range-bound price action from the previous week after failing to test the November high (1.3328).

USD/CAD Rate Forecast: Monthly Opening Range Warns of Further Losses

USD/CAD extends the decline following the Bank of Canada (BoC) interest rate decision, and the exchange rate may continue to give back the advance from the October low (1.3042) as it carves a series of lower highs and lows.

The Canadian Dollar may continue to outperform its US counterpart as the BoC tames speculation for lower interest rates, and the central bank may continue to endorse a wait-and-see approach in 2020 as Deputy GovernorTimothy Lane insists that “the current setting of the policy interest rate remains appropriate to keep inflation at our 2 percent target.

The comments suggest the BoC will keep the benchmark interest rate at 1.75% for the foreseeable future amid “easing of concerns about the possibility of a global recession,” and the update to Canada’s Employment report may do little to alter the monetary policy outlook as job growth is expected to recover in November.

Image of DailyFX economic calendar

Canada is anticipated to add 10.0K jobs following the 1.8K decline in October, and a positive development may trigger a bullish reaction in the Canadian Dollar as it encourages Governor Stephen Poloz and Co. to retain a wait-and-see approach for monetary policy.

Nevertheless, the remarks from Mr. Lane suggest the BoC will pay increased attention to the shift in US trade policy as future “interest rate decisions will be guided by our continuing assessment of the economic impact of trade conflicts.

In turn, the BoC may alter the forward guidance for monetary policy in 2020 as the US and China struggle to reach a trade deal, but USD/CAD may continue to track range-bound price action from the third quarter as the Federal Reserve shows a greater willingness to take a break from its rate easing cycle.

With that said, the monthly opening range casts a bearish outlook for USD/CADas the exchange rate snaps the range-bound price action from the previous week after failing to test the November high (1.3328).

Sign up and join DailyFX Currency Strategist David Song LIVE for an opportunity to discuss potential trade setups.

USD/CAD Rate Daily Chart

Image of USD/CAD rate daily chart

Source: Trading View

  • Keep in mind, the rebound from the 2019 low (1.3016) has failed to generate a test of the Fibonacci overlap around 1.3410 (38.2% expansion) to 1.3420 (78.6% retracement), with USD/CAD largely tracking sideways as it remains stuck in the range bounce price action from the third quarter.
  • At the same time, the flattening slopes in the 50-Day (1.3215) and 200-Day SMA (1.3278) warn of range-bound conditions as the moving averages look poised to converge with one another.
  • More recently, USD/CAD appears to have marked a string of failed attempts to test the October high (1.3348), with the monthly opening range for December instilling a bearish outlook as the exchange rate snaps the range-bound price action from the previous week after failing to test the November high (1.3328).
  • At the same time, the Relative Strength Index (RSI) highlights a similar dynamic as the oscillator snaps the upward trend carried over from the previous month.
  • The move below the 1.3220 (50% retracement) region brings the Fibonacci overlap around 1.3120 (61.8% retracement) to 1.3130 (61.8% retracement) on the radar, with the next area of interest coming in around 1.3030 (50% expansion), which largely lines up with the 2019 low (1.3016).

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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